Watch the webinar
- Rain Newton-Smith, Chief Economist, CBI
- Yael Selfin, Chief Economist, KPMG
- Dr Anna Valero, Senior Policy Fellow and Economist, The London School of Economics
- Ceri Thomas, Editor and Partner, Tortoise Media (Chair)
In this session:
- Lots of optimism in the Budget for business from the business rates relief for small businesses in hard-hit sectors, to the 50% increase in innovation spending over the next decade.
- But overall the budget wasn’t bold enough to really lift productivity and growth in the long term.
- On skills in particular it was a mixed bag, with the Chancellor missing the opportunity to talk about adult life learning. Announcements on skills boot camps were welcome, but there’s a question of whether they meet the scale of what we’ll need given we’re living and working longer.
- On education and skills funding, the announcements on schools funding was welcme, but we shouldn’t forget the lifelong learning gap too.
- A joint CBI and Mckinsey report showing 50% of those on lowest incomes have had no training since they left secondary school.
- And while it’s positive we won’t see long-term scarring in the labour market by high unemployment among the young as we feared at the beginning of the pandemic, but we will see a scarring effect on those in education which has hit those on lowest incomes harder.
- This will lead to higher inequality, and with the promised catch up spending being a lot lower than recommended, this is where we risk seeing the long-term scarring from the pandemic.
- The Chancellor was maybe more generous than we predicted. But overall, there wasn't a big vision on funding and growth set out to drive key themes like climate change, levelling up or tech and innovation.
- Overall not too worried about inflation because it can be seen as a short to medium term issue that will go back to the Bank of England target as early as next year.
- But there is still another year to deal with higher prices. The concern is whether the embedding of higher prices will lead to higher interest rates.
- The focus of the Chancellor is on reducing public debt, which means we’re seeing a higher burden of debt and tougher business environment as a result.
- But what we’ve learned from the pandemic is when it's needed the government can step in and do more.
- Interest rates are likely to remain low for a long time, so there will be some scope for the government to step in and make the investments and reforms to the tax system to drive us toward faster growth.
Dr Anna Valero:
- While global forces are at play, looking ahead we need to focus on productivity to avoid an inflationary spiral.
- But we face a big challenge to restore productivity levels. UK productivity was hit more than other countries during the pandemic, which is worse when coupled with the impact of Brexit.
- So the commitment to of £20bn of spending on R&D is crucial, even though in 2020 the government committed £24bn by 2024.
- But the direction of this spending will be crucial to achieve the government’s wider objectives i.e. whether on clean tech to help us solve the climate crisis.
- There’s strong evidence that public R&D crowds in private sector R&D due to confidence and spill overs, especially in areas where long term research is needed.
- And if you invest in human capital it improves people’s outcomes in life, with better skilled workers leading to more productivity. We need skills to tackle net zero, and to tackle regional inequalities following the pandemic.
- But the budget didn’t have such a joined up agenda with a coordinated set of policy i.e the inconsistency of the net zero strategy with the freeze on fuel duty and cut to passenger duty for domestic flights.
- The role for government is to work out where productivity gains might come from.
- Firms were pushed into tech adoption by the pandemic, but barriers remain to them taking this further.
- Recent survey between the LSE and CBI showed a rise in skills constraints were the main barrier to tech adoption with broadband accessibility also causing issues.
- There’s a lot government can do to leverage the opportunity we have from the changes companies have made over the pandemic to create an innovative trajectory rather than letting the progress dwindle.